I posed that question this week to my friend Dr. Phil Windley, an expert technologist, Executive Producer of IT Conversations and a serial entrepreneur. He and co-founder Stephen Fulling have launched multiple ventures together beginning with iMALL Inc., which they sold to Excite@home in 1999. Disclosure: I have no current business relationship with Windley and Fulling but provided PR counsel to their company Kynetx in 2009-2010.

This week Windley and Fulling crossed another horizon together when they pressed the Launch button on their first crowdfunding campaign with Kickstarter to fund a project called Fuse. Fuse is a device that uses a built in GPS and cellular modem to stream data from your vehicle into a personal cloud. The device provides space-age app functionality such as mapping out a car pool route and pinging riders with an automatic call or text to let them know when you’re close. It can keep tabs on the driving habits of teen drivers (NPR has had some interesting things to say on this front). The device also manages fuel economy by calculating best times and locations to fill up and manages car expenses by alerting owners to maintenance needs by accessing the engine codes that only the dealership can normally read.

As I might have suspected, the product also proves a point the two founders are making: that there are new ways for technology to coalesce across many devices and platforms to produce surprising outcomes that are entirely customer driven.

In other words, in addition to the funding, the project is a PR and messaging mission to validate the company’s technology foundation while it kicks off the development of an extreme coolness factor device. So why did these experienced executives launch their idea on Kickstarter as opposed to using a traditional funding model and a traditional (ahem) public relations campaign?

Fuse is the first foray into crowdfunding for serial entrepreneurs Windley and Fulling

Says Windley: “The primary reason I like the idea of Kickstarter is that it validates an idea. For a small investment in time and money to create a good video and a compelling message, we can test whether or not this is a product or an idea that people will actually buy. The money we’ll make is likely small potatoes compared to what we’d raise in a typical funding scenario (unless it really takes off). But the big payoff is the information about the potential market we’ll get.”

Windley and Fulling are far from alone. According toSocial Media Today, Kickstarter has produced $786 million (as of Sept 2013) in funding and is a great case study for the benefits of crowdfunding.

However, while crowdfunding is great for the purposes Windley and Fulling are envisioning, far too many entrepreneurs jump into crowdfunding as the potential “answer for everything” without also considering the risks. A full 10 perent of projects on Kickstarter complete their rounds without receiving a single pledge, and 56 percent do not get funded because they fall short of their goals. (However, it is important to note that even incompleted campaigns produce valuable market research and feedback to entrepreneurs about the reasons their ideas aren’t ready for prime time just yet.)

To be a good candidate for crowdfunding, the project must have ample investors and donors who are willing to align with the project both conceptually and with their pocketbooks. Translation: a crowdfund campaign that is meant to generate market buzz and public relations (in addition to funding) will only be successful if the entrant walks in having already created a sufficient amount of—you guessed it—PR and marketing buzz.

To be successful on the marketing front, writer Kriti Vichare advises entrantsto be realistic about the total goals for their program, which requires a fair amount of research of other similar ideas and programs in advance. Vichare also recommends three steps that I agree with as well:

Make the project crystal clear, concise and extremely easy to communicate.

Show ample evidence of potential future success through past sales or market research.

Provide compelling gifts for investors and donators. If you don’t know what your donors would like? Ask them, by getting their ideas and opinions in face to face visits and social media conversations in advance.

What are the other cautions for entrepreneurs? For marketing and for funding in general, Lyn Blanchard of Wavefront on Wireless provides the following cautionary guidance to entrepreneurs:

It’s all or nothing: Don’t forget that most CF platforms will only release the funds you raise when 100 percent or more of the funding goal is achieved. There’s no formal penalty for not reaching the goal, and the increasing number of entrepreneurs who crowdfund primarily for market testing and visibility value have fairly well alleviated the risk of a reputational hit, but if your primary goal (or one of them) is funding, consider the disappointment and the time and effort you’ll have lost if your funding goal isn’t achieved.

You may be putting your IP at Risk: This is the single biggest risk to crowdfunding, for any purposes in my opinion. Putting your crowdfund project on the Internet can expose your idea to IP theft by copycats. If your product is unique and a copycat idea could threaten your viability, crowdfunding is not for you. And regardless of your answer, every company will need to weigh in the balance the decision of how much information to disclose. For success, you’ll need to disclose far more information to potential investors (and this will be even more relevant when crowdfund investment emerges) than you would need to reveal in traditional forms of PR. In Blanchard’s opinion the best way to proceed with a unique idea is to register provisional patents as a date and time stamp before proceeding with a crowdfund campaign. On the plus side, you should also consider that a crowdfunding project often results in interesting relationships with people or partners that otherwise would never have happened. Think business networking, writ large. “Opportunities can surface through serendipity with a little bit of boldness,” Blanchard says.

It’s less ideal for B2B products: A quick review of popular crowdfund platforms will make it clear that the vast majority of successful projects are marketing to consumers. Crowdfunding speaks, inherently, to the passions and motivations of individuals who are acting from the vantage point of their personal beliefs and self-interests. Customers give to a crowdfunding campaign because they believe the idea is cool, or worthy, or it resonates with their personal passion. Crowdfund projects are less efficient at compeling a business with conflicting corporate objectives and depersonalized motivations to act.

Best for projects that are not complicated: Likewise, complicated or technical projects can be difficult for a lay person to understand, leaving them scratching their heads for a reason to get on board with a project.

Less ideal for large capital needs: Yes, Pebble scored big. But the Pebble bonanza is not the norm for the majority of crowdfund campaigns. Crowdfunding is a better choice for seed capital rounds of capital, where a company is looking to validate a cool idea and capital needs are less than $100,000. If your capital needs are higher than this, you should look more strongly to traditional sources. However, crowdfunding as a component of an overall strategy for a capital raise can be a smart arrow to add to the quiver.

A poor choice for long R&D: If your business is in a sector where lengthy R&D cycles are the norm (as in years instead of months), crowdfunding is not for you. Crowdfund backers expect to see results within a very short time.

As I look at the Fuse offering I agree with Windley’s assessment: Why not? Nearly everyone has at least one car, and we value them highly. As a society, we spend a great deal on our vehicles. Also, as Windley points out in his most recent Technometria blog, cars generate a great deal of data that combines with the other data in your life (schedules, budgets, projects and destinations) in some very interesting ways. On the marketing front, I will also add the advice that whether failed or successful, crowdfund campaigns remain visible on the crowdfund platform long after the campaign has ended. Potentially even forever. This means that smart marketers continue to update the campaign, even after completion, with new materials, video links and information about how to reach their company for more information.

My personal prediction for Windley and Fulling’s new project: As a way-cool means of making my car even more fun and productive, I am betting the Fuse campaign will succeed. I want one (unless, perhaps, it allows my husband and teens to see just how fast I occasionally drive). As a proof of concept of the underlying technology—we shall see. On that front, I will monitor this project’s progress and report the results over time. As a replacement for traditional PR and marketing, I believe crowdfunding can be a highly beneficial component of a stellar marketing outcome, but that traditional programs are also required for a project to fully prevail.

posted from :http://www.forbes.com/sites/cherylsnappconner/2013/10/20/could-crowdfunding-replace-traditional-marketing/